The Great Recession had lasting effects, ranging from long-term joblessness and declining business dynamism. Enterprise suffered as well, with many businesses going under. Others have managed to make it through, albeit it by switching strategies. In the restaurant industry, a drastically different set of obstacles has emerged — including new labor rules and high food prices.
Some in the food industry have been operating at a heightened threat level for many years now. Though people still love fast-food, fast-casual eateries and formal restaurants were hit fairly hard by the evolving state of the market. Many have recovered, but things continue to churn.
For example, chains like The Olive Garden and Red Lobster are or looked to be nearing the end of their lifespan. They’ve since recovered, though that has a lot to do with external economic conditions.
During the 1980s and 1990s, many restaurant chains set their sights on the middle class, offering reasonably priced meals that entire families could enjoy and afford. But as the middle class shrinks and inequality becomes more of an issue, these chains are hemorrhaging customers, and it’s ultimately going to doom them. Another product of less-than-ideal economic conditions is rising food prices. There have been a variety of factors behind skyrocketing prices for food, including climactic conditions and tighter regulations. As a result, consumers and businesses are feeling the pinch.
Many restaurants simply haven’t been able to absorb the costs without switching gears. You’ll notice that certain fast food restaurants have bumped up prices over the past few years, for example. If they crank the dial too much, though, consumers will just find another place to eat if they feel prices are too high. And the cutthroat world of food offers consumers alternatives almost everywhere they look.
For these 10 restaurants, the struggle continues. And unless they can find ways to cope with rising labor and food prices while also retaining their customer base, they’re cooked.
For all of McDonald’s strengths, it has one big weakness. When you base your business on selling beef at a very low price, any fluctuations in food prices (meat in particular), are going to have a big impact. The chain’s famous “dollar menu” has disappeared at many locations, and franchisees have largely had to institute big changes in order to keep customers coming in. McDonald’s is also facing competition from companies like Chipotle and Panera Bread, both of which offer a better dining experience at a similar — albeit slightly inflated — price.
2014 was an extremely rough year for McDonald’s, with declining sales almost across the board. 2015 wasn’t any better. There has been some improvement, but you may not want to be bullish on McDonald’s just yet.
2. Tony Roma’s
When was the last time you were in a Tony Roma’s? For many people, it’s been a long time. Tony Roma’s is another restaurant whose signature dish — ribs — is becoming more and more expensive to supply to customers. It’s also stuck in a segment with other struggling chains like The Olive Garden and Red Lobster.
As management has become more aware that the chain is in trouble, the company has begun making big changes. A new “Texas-themed” menu has been announced, and a new CEO has taken over. Along with rising costs, Tony Roma’s biggest challenge looks to be building, and retaining, a consumer base.
Applebee’s is another chain that almost exclusively targets middle-class customers. And it’s suffering as that segment of the population dwindles. Not only has the restaurant become the butt of many jokes for their oftentimes lackluster menu options, but they’re also getting hammered on the bottom line as food costs go up. Many staples of Applebee’s menu are items like burgers and steaks, both of which are becoming drastically more expensive to make.
In a strategy change, Applebee’s recently switched ad agencies, and the company’s CEO says they will look to differentiate themselves from rivals with innovative new products and approaches.
4. Outback Steakhouse
The one-time champion of middle-class steakhouses, Outback Steakhouse is having a hard time. Perhaps it’s the fact that the company’s “Australian” shtick has worn thin over the years, or maybe the food has suffered in quality. Either way, customers are not filling the seats like they used to.
Outback is doing a bit better than some of its competitors. But when you primarily serve steaks and other meat-centric menu items, you’re bound to take a hit on the bottom line when prices of those inputs go up. Things have been looking better for Outback. But its parent brand, Bloomin’ Brands, is still in trouble.
5. Ruby Tuesday
Another chain that specializes in steaks, burgers, poultry, and seafood, Ruby Tuesday took a big hit during the recession and never really recovered. The company’s menu is filled with all kinds of delicious-looking meals, made up of beef and seafood products that have become vastly more expensive in recent years. Analysts don’t expect much good news in terms of business going into the future, and food prices have almost certainly played a part in those projections.
2015 was a roller coaster for the chain. And again, if Ruby Tuesday wants to retain its place as a viable option for middle-class diners, it will need to retool its menu to better cope with expenses going into the future.
6. T.G.I. Friday’s
Offering a similar experience to Applebee’s or Chili’s, T.G.I. Friday’s offers diners pretty much the same in terms of menu choices. Burgers and steaks headline the menu, and as we know, those items are becoming a bigger expense for the company than before.
The company has done its best to separate itself from the pack, even offering free food to keep customers coming in the door. But analysts have been looking down on the company, even going so far as to say that recent promotions “will destroy” it. Friday’s faces threats on all sides and food expenses is simply another one to add to the list.
Chili’s specializes in Southwestern cuisine, although they do offer a number of other options. Recently, the company made the announcement that it was dropping several dishes from its menu – many which are expensive to make, and coincidentally don’t necessarily match up with the restaurant’s theme.
Bloomberg reports that Chili’s has decided to drop items like pizza, the Philadelphia cheesesteak, and in many regions, country-fried steak. These items all incorporate expensive ingredients like beef and cheese, and were probably easily put on the chopping block. Chili’s is becoming a liability for its parent company, and it’s unclear where things are headed in the future with increasing costs and declining sales.
8. Romano’s Macaroni Grill
Over the past two years, Romano’s Macaroni Grill has experienced an overall drop in sales of 11.5%. This, after the company had actually forecasted growth of 1%, as The Motley Fool reports. But the simple fact of the matter is that the Macaroni Grill has found itself in the same position that competitors like The Olive Garden have: Its customer base has been hit hard, and are therefore looking at other options.
Nineteen locations closed in 2014, and the Macaroni Grill has also been found to be one of the worst-performing restaurant chains in the country. The brand itself was sold in early 2015 for a surprisingly low amount, as well.
Wendy’s is in the same boat as McDonald’s. It’s input costs are going up, and it’s reflected on the menu. At some point, people would rather spend more money somewhere else. In fact, Wendy’s executive team has identified cheaper prices at grocery stores to be a very real threat. People can save money and eat at home — and that’s hurting Wendy’s bottom line.
10. Dunkin’ Donuts
Dunkin’ Donuts are trying a new strategy: Become more upscale. Essentially, the company wants to become a bit more like Starbucks. But that’s not an easy thing to do, and it’s not clear as to whether it can successfully make the change. Higher input costs lead to higher menu prices, and that could alienate the company’s main customer base.
SNL has even taken its shots. But Dunkin’ Donuts is giant and has locations all over the country. It probably won’t go under, but if the new strategy doesn’t pay off? It could be a rough stretch.